Canadian Pacific's Bid for Norfolk Southern
HBS Case Study No. 216-057
Posted: 2 Sep 2016
Date Written: May 13, 2016
On December 16, 2015, Canadian Pacific Railroad (CPR), in conjunction with hedge fund activist William Ackman (Pershing Square), made its third bid to acquire Norfolk Southern Corporation (NSC), one of the largest railroads in the United States. Having rejected the prior offers, NSC's CEO James Squires and the NSC board must now value the current offer including the projected merger synergies as well as a recently-added contingent value right (CVR) security designed to "sweeten" the offer, and decide how to respond.
This case provides a comprehensive review of topics covered in both introductory and advanced corporate finance courses. For example, it covers acquisition bidding strategies, capital structure, DCF valuation, valuation using transaction multiples, valuation of projected synergies, the role of activist investors, corporate restructuring, fiduciary duties, option pricing, and payoff diagrams, and does so in a very interesting and current setting.
Keywords: Activist investors, M&A, synergies, DCF valuation, Contingent Value Rights (CVR), bidding, negotiation, capital structure, merger considertaion
JEL Classification: G13, G34, G24
Suggested Citation: Suggested Citation